How does refinancing work?

[larolargo]

I was wondering how refinancing works when buying with AFS. Can the seller refinance only when the house is free and clear or Can he refinance if he has some equity?

I`m working with a seller who has about $130,000 in equity and if her husband agrees she might wait for me to cash her out some time in the future, If they don`t I was thinking about telling them to refinace their equity( the payment is already low so there would be some room), pull as much cash as they can and then I`d take over their debt(if the value of the house they told me is correct i`ll have $20,000 in walk in equity). But I`m not sure if they can do that?

if they can, what`s the max LTV?

Thank you!

Mario

 

[Thomas Beyer]

Seller should do a re-finance BEFORE you buy it.

Refi up to 80% with a conventional lender and 90% with CMHC.

With CMHC the seller is still liable for mortgage if you, the new owner, default eventually !

After you buy it, your interest in property is on title, via a caveat, and property is now sold to you (in the future). No bank will re-finance the seller, ONLY YOU, the new owner.. this is usually how to exit the AfS: you sell .. or re-finance based on higher future value.

Some banks have a clause in their mortgage that treats an AfS as a sale and as such the current owner is in default, and can demand their mortgage. This is not commonly done though !

 

[larolargo]

Hey Thomas,

I talked to the seller today and she`s more likely to refinance.

Does she have to go thru her lender to do that or another mortgage broker will do the job?

Here`s the numbers:

ARV:$530,000
Asking:$510,000
Equity:$125,000

Loan:$385,000
Payment:$1,400 PITI- 2% Variable
It`s currently rented for $2,300 per month.

So she she has to refinance the $125,000 at 80%, right?
Then she gets $100,000 now and $25,000 when I cash her out sometime in the future. However, I want to make sure she refinances it right
so my monthly payment stays low. Preferably under $2,000.

So how is the best way to go? Line of credit, second mortgage?

I`ll probably visit her on saturday, so If she agrees to do the program and we sign the contract of purchase and sales, should I put any clause
in relation to that? What should I write?

Thank you!

Mario

 

[Thomas Beyer]

QUOTE (larolargo @ Nov 25 2010, 10:20 PM) .. ARV:$530,000
Asking:$510,000
..
??

80% of $500,000 is $400,000 .. thus hardly over 385K !

NO EQUITY for seller today !!

A house for 500K rented for $2300 is VERY HIGH RISK !!

 

[larolargo]

I see...
I thought she could refi just the amount of equity that she has has on the house and get a second mortgage to pull out her equity.
So you are saying that if she refinances she can pull out only $23,000, right?
Which is not bad if they can wait to get the $102,000 later on.
The house is a 7 bed/4 baths, monthly payment is $1,400 PITI.

Thanks!

 

[Thomas Beyer]

QUOTE (larolargo @ Nov 26 2010, 09:47 AM) I see...
I thought she could refi just the amount of equity that she has has on the house and get a second mortgage to pull out her equity.
So you are saying that if she refinances she can pull out only $23,000, right?
Which is not bad ...
It strikes me that YOU need to further your real estate education !

Taking on debt of over 400k is a serious decision as YOU will be responsible to pay it eventually .. From a sale or refinance down the road !

Before buying ..and taking on debt .. You have to consider how to exit eventually !!

 

[larolargo]

QUOTE (ThomasBeyer @ Nov 27 2010, 10:47 AM) It strikes me that YOU need to further your real estate education !

Taking on debt of over 400k is a serious decision as YOU will be responsible to pay it eventually .. From a sale or refinance down the road !

Before buying ..and taking on debt .. You have to consider how to exit eventually !!

Hey Thomas,

I completely understand your point! I`m not an expert yet but I`ll learn as a go. I`ve spend time and money (1 year)learning as much as I could so now it`s time for me to take action. I don`t know everything, that`s why I joined REIN as well as Ron Legrand`s network. So I can get help as I need.

Quick turn is the area of real estate that I like and I am very committed to it. It`s not easy at all but not impossible either.

In terms of exit strategy for the property, I will only take over that debt if the payment stays below $1,700, so worst case scenario I can rent it out for $1,800
mininum(seller rents it for $2,300 now) until I cash out. Second, worst case scenario is I sell for what I buy and take nothing home( If I buy i`ll walk in about $20,000 in equity).
Best case scenario I`ll sell with a RTO or AFS and try to raise the price at least 5%( the house has a mtg helper).

Thank you!

Mario Ferreira

 

[Thomas Beyer]

QUOTE (larolargo @ Nov 28 2010, 12:13 PM) ..Second, worst case scenario is I sell for what I buy and take nothing home( If I buy i`ll walk in about $20,000 in equity)...
or: bank requires immediate re-fi as they deem an AfS a sale .. or vacant for 6 months .. or dropping market .. your worst case is an assumed bad normal case .. not a worst case.

Did you do enough research on RENTS ? Is $1800 or $2300 SUSTAINABLE for the area and type/quality of home ?

 

[housingrental]

I support Thomas`s above post
Mario caution is needed

 

[larolargo]

QUOTE (housingrental @ Nov 30 2010, 08:02 AM) I support Thomas`s above post
Mario caution is needed

Thanks for the heads up guys!
$1,800 is very reasonable for a 7/4 detached, 3200 sqf.
The seller won`t take my calls, i`ll follow up again next week. Probably the deal is gone.
So,If the seller is willing to refinance to pull her cash out and let me take over the debt. What should I do to prevent the above scenarios
and do a successful deal?
I heard from other members that the bank won`t call the loan due unless I default, so what should I do to make sure everything works fine?

Thank you!

Mario

 

[Thomas Beyer]

QUOTE (larolargo @ Nov 30 2010, 06:01 PM) .. so what should I do to make sure everything works fine?
write an offer FIRST (with subjects to be removed by you) .. get it accepted .. then check out details such as mortgage .. !

Before you write offers you must know if value is OK and what rents are i.e. you have to KNOW based on your extensive and very SPECIFIC DUE DILIGENCE that this is a great deal !